Applying principle-based guidelines to a complex transaction: exploring management judgement and decision-making

Purpose - The purpose of this paper is to explore management’s information processing, as well as application of judgement and decision-making when faced with accounting for a complex transaction applying principle-based guidelines. Design/methodology/approach - IFRS 15, a principle-based standard, provides minimal guidance to credit card rewards programmes (CCRPs), and complex CCRP transactions were selected as a single case in this qualitative study. Fifteen semi-structured interviews were conducted with CCRP managers, and the data were analysed using thematic analysis. Findings - Various cognitive elements were witnessed in analysing management’s experiences of the decision-making process on accounting for CCRP transactions. The management of some CCRPs were reflective, showcasing professional scepticism and resulting in rational decision-making, while others were impulsive, introducing bias into the decision-making process and leading to bounded rationality. The decision-making processes of management also illustrated the positive and negative effects of familiarity with an event or transaction. In some cases, management seemed averse to change and past practices acted as anchors that distorted management in applying their unbiased judgement when accounting for CCRP transactions. Originality/value - An in-depth understanding was obtained of how management dealt with the cognitive elements that were present in the decision-making process and applied their judgement when accounting for a complex transaction under principle-based guidelines, contributing to theoretical accounting knowledge. To overcome bounded rationality, it is recommended that accountants work in teams and consult with IFRS advisory team members. Educators could use the findings of this study to facilitate the development of students’ decision-making skills.